2023 (12) TMI 552 - AAR - GST

Aircraft supply with maintenance services deemed composite supply under section 2(30) attracting 5% GST rate

The AAR Gujarat ruled that the supply of aircrafts with maintenance services constitutes a composite supply under section 2(30) of CGST Act, with aircraft ... Nature of supply - supply of goods or supply of service - business of assembly, manufacture and supply of aircrafts - supply under the contract between the applicant & Airbus - appropriate classification - rate of tax - value to be adopted for the purpose of payment of GST - time of supply for payment of GST. Whether the nature of the supply under the contract entered into between the applicant and Airbus would qualify as ‘supply of goods’ or otherwise? - HELD THAT:- The supply of aircrafts & provision of support services are naturally bundled & supplied in conjunction with each other in ordinary course of business & hence in terms of section 2(30) of the CGST Act, the aforesaid said supply is a composite supply - Even otherwise in the instant case, the applicant’s supply involves goods i.e. aircrafts and maintenance etc. which is a service. The contractual agreement between the applicant and Airbus requires the applicant to supply the aircrafts and provide for its maintenance etc. The applicant therefore is engaged in two taxable supplies. What is pivotal is that the supply of service is possible only when the goods i.e. aircrafts are supplied. Hence, the contract is a composite supply which are naturally bundled and supplied in conjunction wherein the principal supply is that of aircrafts. What will be the appropriate classification and rate of tax of the said supply? - HELD THAT:- Since it is already held that the contract with Airbus for supply of aircraft is a composite supply, and that the principal supply being supply of goods viz aircraft, it is held that aircrafts are classifiable under CTH 8802 & will attract GST @ 5% in terms of notification No. 1/2017-IT (Rate) dated 28.6.2017 entry no. 244. Value to be adopted, for the purpose of payment of GST - HELD THAT:- In this case, the applicant relying on clause 1 [which defines FIM] and clause 4.2 of the contract and clauses 1.3 and 2.3.7 of the SoW, is of the view that since the FIM were supplied free owing to a contractual obligation and also on account of the difficulty laced in indigenization, this will not form part of the value of supply - However, the issue of valuation of free supplies under GST has been decided by the Honblé Chhattisgarh High Court in the case of M/s. Shree Jeet Transport [2023 (11) TMI 206 - CHHATTISGARH HIGH COURT] where it was held that though the diesel was provided free of cost by the service recipient, it would nevertheless be added to the value for the purpose of GST. The issue therefore is no longer res Integra having been decided by the Hon’ble High Court of Chhattisgarh, following the judgement of the Honblé High Court, it is held that the value to be adopted for the purpose of payment of GST in respect of 40 aircraft will include the supply made free of cost by Airbus i.e. will include the value of FIMs also. Time of supply for payment of GST - HELD THAT:- A conjoint reading of section 12 with notification No. 66/2017-CT, clearly leads one to a conclusion, that provision on payment of tax on advances received on supply of goods, stands deleted vide notification No. 66/2017-CT dated 15.11.2017. Therefore, the contention of the applicant is agreed upon that they are not required to pay GST on the receipt of advance in the case of supply of goods. Issues Involved:1. Nature of Supply2. Classification and Rate of Tax3. Value for Payment of GST4. Time of Supply for Payment of GSTSummary:1. Nature of Supply:The primary issue was whether the contract between the applicant and Airbus would qualify as a 'supply of goods' or 'supply of services.' The applicant argued that the contract entails the supply of goods, specifically 40 C-295 aircrafts, despite also providing support services. The Authority for Advance Ruling (AAR) determined that the contract is a composite supply under Section 8(a) of the CGST Act, 2017, where the principal supply is the supply of aircrafts, and the support services are incidental and ancillary to this principal supply.2. Classification and Rate of Tax:The applicant contended that the supply of aircrafts should be classifiable under CTH 8802 and attract GST at 5% as per entry 244 of Notification No. 1/2017-IT (Rate) dated 28.06.2017. The AAR agreed, holding that the aircrafts are classifiable under CTH 8802 and will attract GST at 5%.3. Value for Payment of GST:The issue was whether the value of Free Issue Materials (FIMs) supplied by Airbus should be included in the transaction value for GST purposes. The applicant argued that FIMs should not be included in the value of supply as they are provided free of cost due to contractual obligations. However, the AAR, referencing the Chhattisgarh High Court's decision in M/s. Shree Jeet Transport, held that the value of FIMs should be included in the transaction value under Section 15(2)(b) of the CGST Act, 2017, as they are essential components provided by Airbus.4. Time of Supply for Payment of GST:The applicant argued that GST should not be paid on receipt of advance in the case of supply of goods, citing Section 12(2) of the CGST Act and Notification No. 66/2017-CT dated 15.11.2017. The AAR agreed, concluding that the applicant is not required to pay GST on advances received for the supply of goods.Ruling:1. The nature of supply under the contract is a composite supply with the principal supply being the supply of aircrafts.2. The aircrafts are classifiable under CTH 8802 and will attract GST at 5%.3. The value for payment of GST will include the value of FIMs supplied by Airbus.4. The time of supply for payment of GST will be as per Section 12 of the CGST Act, 2017, and advances received are not subject to GST.